Deck 17: Partnership

Question 1

Articles of partnership:

A)are required to form a partnership by federal law.
B)are a formal written agreement that states the partners' relationship.
C)may be an oral agreement.
D)Both B and C are correct.

Answer 1

B

Question 2

The characteristic that means if a partnership is unable to pay its obligations all general partners are individually liable is known as:

A)limited life.
B)unlimited liability.
C)limited liability.
D)mutual agreement.

Answer 2

B

Question 3

When two proprietors decide to combine their businesses and form a partnership,GAAP usually requires that noncash assets be taken over at their:

A)residual value on the date of the partnership.
B)book value on the date of the partnership.
C)fair market value on the date of the partnership.
D)historical cost on the date of the partnership.

Answer 3

C

Question 4

Dissolution of a partnership can occur under the limited life characteristic if a partner:

A)dies.
B)becomes incapacitated.
C)goes bankrupt.
D)All of the above are correct.

Question 5

Tricia and Jennifer formed a partnership.Tricia invested $15,000 cash;Jennifer invested $8,000 cash,equipment with a fair value of $7,000,and $2,000 accounts payable.The proper entry to record this is:

A)debit Cash $23,000;debit Equipment 7,000;credit Accounts Payable $2,000;credit Tricia's Capital $15,000;and credit Jennifer's Capital $13,000.
B)debit Cash $23,000;debit Equipment 5,000;debit Accounts Payable $2,000;credit Tricia's Capital $15,000;and credit Jennifer's Capital $15,000.
C)debit Cash $23,000;debit Equipment $7,000;credit Tricia's Capital $15,000;and credit Jennifer's Capital $15,000.
D)debit Cash $21,000;debit Equipment $7,000;credit Tricia's Capital $15,000;and credit Jennifer's Capital $13,000.

Question 6

Partner A invested furniture that was recorded at a value above the fair market value.This error would cause:

A)the period's net income to be overstated.
B)the period end capital to be understated.
C)the period end assets to be overstated.
D)the period end assets to be understated.

Question 7

Laura's investment in a new partnership includes $2,000 cash and equipment at a fair value of $7,000.The new partnership is assuming $1,500 of Laura's accounts payable.The partnership entry should be to:

A)debit Laura,Capital $7,500;debit Accounts Payable $1,500;credit Cash $2,000;credit Equipment $7,000.
B)debit Cash $2,000;debit Equipment $7,000;credit Laura Capital,$9,000.
C)debit Cash $2,000;debit Equipment $7,000;credit Accounts Payable $1,500;credit Laura,Capital,$7,500.
D)debit Laura,Investment $9,000;credit Capital $9,000.

Question 8

Since all partners are bound together in the agreement and each acts on the behalf of the partnership,________ has been established.

A)limited life
B)limited risk
C)mutual agency
D)unlimited liability

Question 9

Many associations such as medical centers and law firms could organize as a:

A)sole proprietorship.
B)corporation.
C)partnership.
D)Both B and C are correct.

Question 10

A partner that is personally liable for all of the debts of the partnership is known as:

A)a limited partner.
B)a general partner.
C)a mutual partner.
D)None of these answers is correct.

Question 11

Which of the following is true of a partnership?

A)Actions of one partner are not binding on all the other partners.
B)Each partner is individually liable for partnership debts.
C)All of the owners always share income and losses equally.
D)Both A and B are correct.

Question 12

Partner C invested equipment in the partnership and the equipment was recorded at its book value.This error would cause:

A)future period's net income to be understated.
B)future period's net income to be overstated.
C)this period end assets to be overstated.
D)None of these is correct.

Question 13

Nathan Long is entering into a partnership with Terri.Nathan is investing $4,000 cash and equipment currently on Nathan's books at $10,000 and accumulated depreciation of $2,000.The equipment has a fair market value of $6,000.The entry to record Nathan's investment should be to:

A)debit Cash $4,000;debit Equipment 10,000;credit Accumulated Depreciation $2,000;credit Long,Capital $12,000.
B)debit Cash $4,000;debit Equipment $6,000;credit Accumulated Depreciation $2,000;credit Long,Capital $8,000.
C)debit Long,Capital $12,000;debit Accumulated Depreciation $2,000;credit Cash $4,000;credit Equipment $8,000.
D)debit Cash $4,000;debit Equipment $6,000;credit Long,Capital $10,000.

Question 14

Which of the following is NOT generally written into the articles of partnership agreement?

A)How new partners are admitted
B)How accounting records will be maintained
C)The marital status of each partner
D)All are written into the agreement.

Question 15

David and Daniel formed a partnership.David invested $12,000,cash;Daniel invested $7,000 cash and equipment with a fair value of $5,000.The proper entry to record this is to:

A)debit Cash $19,000;debit Equipment $5,000;credit Capital $24,000.
B)debit Cash $19,000;debit Equipment $5,000;credit Accounts Payable $24,000.
C)debit Cash $19,000;debit Equipment $5,000;credit David's Capital $12,000;and credit Daniel's Capital $12,000.
D)debit Cash $19,000;credit David's Capital $12,000;and credit Daniel's Capital $7,000.

Question 16

A partnership can be formed with an oral agreement.

Question 17

All assets held by a partnership are:

A)co-owned by all partners.
B)owned by the partner(s)who purchased the assets.
C)owned by the partners based on investment percentage.
D)owned by the partnership.

Question 18

The accounting procedures are the same for sole proprietorships as for partnerships with the exception of:

A)the asset section includes more than one cash account.
B)the liability section.
C)the revenue section.
D)the capital section is now divided per the number of partners.

Question 19

The characteristic that means the actions of one partner are binding on all other partners is known as:

A)mutual agency.
B)exclusive agency.
C)unlimited life.
D)limited liability.

Question 20

In comparison with the proprietorship form of business organization,forming a partnership offers which of the following advantages?

A)Limited life
B)Legal liability of each partner for all of the debts
C)Combination of ability and experience of the partners
D)Simple transfer of interest in the partnership to outsiders

Question 21

The Uniform Partnership Act defines a partnership as "an association of two or more persons to carry on as co-owners of a business for profit."

Question 22

A partnership is defined by the Generally Accepted Accounting Principles.

Question 23

Able partner invested cash in the business.
Debit ________ Credit ________

Question 24

A method of dividing net income or loss between the partners is known as a(n):

A)salary allowance.
B)interest allowance.
C)payroll allowance.
D)Both A and B are correct.

Question 25

Discuss the following characteristics of partnerships:
a)Limited life
b)Mutual agency
c)Unlimited liability

Question 26

Applying the interest allowance method,compute Julie and Jennifer's share of net income if Julie invested $50,000 and Jennifer invested $35,000 at an 10% interest rate,with the remainder to be divided equally.Net income was $10,000.

A)Julie $5,000;Jennifer $3,500
B)Julie $5,750;Jennifer $4,250
C)Julie $5,640;Jennifer $4,360
D)None of these answers is correct.

Question 27

Mary and Jeff entered into a partnership agreement.However,the agreement did not state how income and losses would be divided.The law states that income will be divided:

A)equally.
B)according to investments.
C)according to abilities.
D)None of these answers is correct.

Question 28

The agreed-upon ratio for dividing earnings or losses of a partnership is called:

A)interest allowance.
B)salary allowance.
C)profit and loss ratio.
D)profit and loss allowance.

Question 29

Discuss (a)the purpose of the articles of partnership,and (b)indicate the items that should be included.

Question 30

The business paid an account.
Debit ________ Credit ________

Question 31

Prepare the journal entry to record the partners' investment in the company.
Palmer invests $3,000 cash and equipment on his books at $6,000 with accumulated depreciation of $500.The fair market value of the equipment is $6,000.Evans is investing $6,000 cash and $1,000 accounts payable.

Question 32

What is the closing entry to allocate net income of $54,000 to Sara,Ellen,and Mary? Respective capital balances are $50,000,$80,000,and $20,000.No agreement was made for division of income.

A)Debit Income Summary $54,000;credit Sara,Capital $18,000;credit Ellen,Capital $18,000;credit Mary,Capital $18,000
B)Debit Income Summary $54,000;credit Sara,Capital $18,000;credit Ellen,Capital $28,800;credit Mary,Capital $7,200
C)Debit Salary Expense $54,000;credit Salaries Payable $54,000
D)Net income cannot be allocated.

Question 33

Able accepted Baker into the partnership with an investment of cash,inventory,and store equipment,including accumulated depreciation.
Debit ________ & ________ & ________ Credit ________ & ________

Question 34

The business bought store equipment on account.
Debit ________ Credit ________

Question 35

Which method of allocation of profits and losses is based on a percent of initial investment of the partners?

A)Salary allowance
B)Salary expense
C)Profit and loss ratio
D)Interest allowance

Question 36

Norm and Sam agreed on October 1,201x to enter into a partnership.Norm contributes $100,000 and Sam contributes $75,000.Journalize their initial investments.

Question 37

If Blake invests $10,000 cash in a partnership,Cash is debited and Blake,Capital is credited,$10,000.

Question 38

The business provided services on credit.
Debit ________ Credit ________

Question 39

Prepare the journal entry to record the partners' investment in the company.
Todd and Dillon combine their two businesses and enter into a partnership.Todd invests $10,000 cash and equipment on his books at $8,000 with accumulated depreciation of $3,000.The fair market value of the equipment is $7,000.Dillon is investing $6,000 cash and $500 accounts payable.

Question 40

Mutual agency means that the act of a single partner is binding on all the other partners.

Question 41

The average capital balances of partners Bridget and Emily are $5,000 and $15,000,respectively.Bridget and Emily work full time in the business.The business earned net income of $12,000 for the period.The partners have agreed to share earnings based upon the percentage of original investment.Bridget's share of the net income is:

A)$4,000.
B)$6,000.
C)$3,000.
D)indeterminable.

Question 42

Kate and Joe formed a partnership in 2013.Joe invested $80,000 and Kate invested $50,000.The partnership had $100,000 in income during 2015.There is no agreement as to how income is divided.Kate and Joe's share is:

A)Kate gets $100,000 and Joe gets $50,000.
B)Kate gets $50,000 and Joe gets $100,000.
C)Kate gets $50,000 and Joe gets $50,000.
D)some other division.

Question 43

Partners Jessica and Jill receive salary allowances of $5,000 and $10,000,respectively.They share income and losses in a 3:1 ratio for Jessica and Jill,respectively.If the partnership suffers a $21,000 loss,by how much would Jessica's capital decrease?

A)$15,750
B)$10,750
C)$16,000
D)$22,000

Question 44

The net income earned by the Cooper,Cross,and Crane partnership is $21,000.Their respective average capital balances are $20,000,$20,000,and $40,000.What is the closing entry to allocate the net income if no agreement was made for division of income?

A)Debit Income Summary $21,000;credit Cooper,Capital $7,000;credit Cross,Capital $7,000;credit Crane,Capital $7,000
B)Debit Income Summary $21,000;credit Cooper,Capital $5,250;credit Cross,Capital $5,250;credit Crane,Capital $10,500
C)Debit Cooper,Capital $7,000;debit Cross,Capital $7,000;debit Crane,Capital $7,000;credit Income Summary $21,000
D)Not enough information given to allocate

Question 45

Janie and Larry are partners,with beginning capital balances of $67,000 and $55,000 respectively.During the year,Janie withdrew $12,000 and Larry withdrew $18,000.The year's net income of $42,000 was distributed $15,000 to Janie and $27,000 to Larry.Calculate the ending balances in the capital accounts.

A)Janie,$45,000;Larry,$28,000
B)Janie,$70,000;Larry,$64,000
C)Janie,$82,000;Larry,$82,000
D)Janie,$67,000;Larry,$55,000

Question 46

A cash withdrawal of a partner was recorded the same as paying payroll.This error would cause:

A)the period's net income to be understated.
B)the period's net income to be overstated.
C)the period end assets to be overstated.
D)the period end assets to be understated.

Question 47

Applying the profit and loss ratio method,compute Taylor and Timmy's share of net income if Taylor invested $200,000 and Timmy invested $800,000 and the profit and loss ratio is 3:2.Net income was $75,000.

A)Taylor,$15,000;Timmy,$60,000
B)Taylor,$37,500;Timmy,$37,500
C)Taylor,$45,000;Timmy,$30,000
D)None of these answers is correct.

Question 48

Allison and Josh are partners in a business.Allison's capital is $60,000 and Josh's capital is $100,000.Profits for the year are $80,000.They agree to share profits and losses as follows:
$$\begin{array} { | l | r | r | } \hline & { \text { Allison } } & { \text { Josh } } \\\hline \text { Salaries } & \$ 20,000 & \$ 40,000 \\\hline \text { Interest on capital } & 10 \% & 10 \% \\\hline \text { Remaining profits and losses } & 3 / 5 & 2 / 5 \\\hline\end{array}$$
Allison's share of the profits before paying salaries and interest on capital is:

A)$48,000.
B)$22,000.
C)$28,000.
D)$28,400.

Question 49

The basis on which profits and losses are shared is governed by:

A)the SEC.
B)the IRS.
C)the partnership agreement.
D)the partners,and must be shared equally.

Question 50

Partners Brian,Josh,and Chad have average capital balances of $7,000,$3,000,and $90,000,respectively.Net income for the year is $12,000.Salary allowances are $14,000 for Brian and $5,000 for Josh.Chad gets 10% interest on his capital balance with the remainder being divided at a 1:1:2 ratio for Brian,Josh,and Chad,respectively.What is Brian's capital balance after distributing the net income? (Assume no change in capital balances during the year. )

A)$17,000 credit balance
B)$3,000 debit balance
C)$10,000 debit balance
D)$7,000 debit balance

Question 51

Partner B invested inventory using the retail selling price for valuation.Some of the inventory is unsold at period end.This error would cause:

A)the period's net income to be overstated.
B)the period's net income to be understated.
C)the ending assets to be overstated.
D)Both B and C are correct.

Question 52

What is the closing entry to allocate net income $30,000 to Eric,Von,and Derek? Their respective capital balances are $20,000,$40,000,and $60,000.Net income is shared in a ratio of their capital balances.

A)Debit Income Summary $30,000;credit Eric,Capital $5,000;credit Von,Capital 10,000;credit Derek,Capital $15,000
B)Debit Income Summary $30,000;credit Eric,Capital $10,000;credit Von,Capital $10,000;credit Derek,Capital $10,000
C)Debit Salary Expense $30,000;credit Salaries Payable $30,000
D)Net income cannot be allocated.

Question 53

The journal entry to close a net income to the partners is to:

A)debit Income Summary;credit the capital accounts.
B)credit Income Summary;debit the capital accounts.
C)credit Net Loss;debit the capital accounts.
D)debit Net Loss;credit the capital accounts.

Question 54

Applying the interest allowance method,compute Taylor and Timmy's share of net income if Taylor invested $300,000 and Timmy invested $700,000 at a 6% interest rate,with the remainder to be divided equally.Net income was $80,000.

A)Taylor,$24,000;Timmy,$56,000
B)Taylor,$40,000 Timmy,$40,000
C)Taylor,$28,000;Timmy,$52,000
D)None of these answers is correct.

Question 55

Partners Brian,Josh,and Chad have capital balances of $8,000,$6,000,and $80,000,respectively.The losses for the year are $10,000.What will Josh's capital balance be if the three partners share profits and losses at a 2:2:6 ratio for Brian,Josh,and Chad,respectively?

A)$4,000 debit balance
B)$1,000 debit balance
C)$2,400 debit balance
D)$4,000 credit balance

Question 56

The two types of allowances that may be considered before the division of profits and losses are:

A)interest and salary allowances.
B)interest and bonus allowances.
C)salary and bonus allowances.
D)bonus and liquidation allowances.

Question 57

Applying the ratio based on investment method,compute Taylor and Timmy's share of net income if Taylor invested $400,000 and Timmy invested $600,000.Net income was $75,000.

A)Taylor,$15,000;Timmy,$60,000
B)Taylor,$37,500;Timmy,$37,500
C)Taylor,$30,000;Timmy,$45,000
D)None of these answers is correct.

Question 58

The income/loss agreement was ignored when closing the income summary and all income was distributed evenly.This error would cause:

A)the total partners' equity to be overstated.
B)the total partners' equity to be understated.
C)the total partners' equity to be unaffected.
D)the ending assets to be overstated.

Question 59

The different partners are taxed on:

A)the gross revenue of the partnership.
B)the amount they withdraw from the partnership.
C)the total amount of the net profit of the partnership.
D)the partners' share of the net profit of the partnership.

Question 60

Allison and Josh are partners in a business.Allison's capital is $60,000 and Josh's capital is $100,000.Profits for the year are $80,000.They agree to share profits and losses as follows:
$$\begin{array} { | l | r | r | } \hline & { \text { Allison } } & { \text { Josh } } \\\hline \text { Salaries } & \$ 20,000 & \$ 40,000 \\\hline \text { Interest on capital } & 10 \% & 10 \% \\\hline \text { Remaining profits and losses } & 3 / 5 & 2 / 5 \\\hline\end{array}$$
Josh's share of the profit is:

A)$32,000.
B)$44,000.
C)($8,000).
D)None of the above

Question 61

An interest allowance is based on a partner's individual initial investment of capital.

Question 62

A profit and loss ratio must be based on capital contributions.

Question 63

An interest allowance is based on the beginning capital balance of each partner.

Question 64

Janie and Larry are partners,with beginning capital balances of $90,000 and $60,000 respectively.During the year,Janie withdrew $20,000 and Larry withdrew $15,000.The year's net income of $40,000 was distributed $15,000 to Janie and $25,000 to Larry.Prepare a statement of Partners' equity.

Question 65

When a partnership is worth more than the amounts recorded,an incoming partner may:

A)be required to pay a bonus to the other partners.
B)pay a smaller amount as an initial investment.
C)have to pay the same as other partners.
D)None of these answers is correct.

Question 66

The profit and loss ratio is not required to be equally divided between and among the partners.

Question 67

The statement of partners' equity reveals each partner's ownership percentage of the firm's capital.

Question 68

Able partner withdrew cash from the business.
Debit ________ Credit ________

Question 69

A statement of partner's equity is the same as a statement of owner's equity except:

A)there is a capital account for each partner.
B)net income is assigned to one partner.
C)no additional investment by partners is shown on the statement.
D)There is no difference in the statements.

Question 70

James wants to invest cash so that he will have a one-third interest in Thomas and Stanley's company.The capital balances are $6,000 Thomas,$9,000 Stanley.The admission of James would be to:

A)debit Cash $3,000;credit James,Capital $3,000.
B)debit Cash $4,500;credit James,Capital $4,500.
C)debit Cash $7,500;credit James,Capital $7,500.
D)debit Cash $12,000;credit James,Capital $12,000

Question 71

Partners are not required to report their share of partnership earnings on their personal tax return.

Question 72

Closed the income summary to the partners' accounts with a net income.
Debit ________ Credit ________ & ________

Question 73

Mary sold Jill her equity in the Mary and Jill partnership for $23,000.If both Mary and Jill had a $15,000 capital balance,the entry to record this transaction would be to:

A)debit Cash $23,000;credit Jill,Capital $23,000.
B)debit Mary,Capital $15,000;credit Jill,Capital $15,000.
C)debit Cash $15,000;credit Mary,Capital $15,000.
D)debit Jill,Capital $15,000;credit Mary,Capital $15,000.

Question 74

Partnerships are not subject to federal income tax.

Question 75

The Brad and Marcia partnership agree to admit Fred with a one-third interest for $10,000.Brad and Marcia's capital balances are $12,000,and $8,000,respectively,and they share profits and losses equally.The entry to admit Fred would include:

A)debit Cash $10,000;credit Fred,Capital $10,000.
B)debit Cash $10,000;credit Brad,Capital $2500;debit Marcia,Capital $2500;credit Fred,Capital $5,000.
C)debit Cash $10,000;credit Brad,Capital $5,000;credit Marcia Capital $5,000.
D)debit Cash $10,000;debit Brad,Capital $2,500;credit Marcia,Capital $2,500;credit Fred,Capital $10,000.

Question 76

John and Brad have average capital balances of $35,000 and $20,000,respectively.The partners have agreed to allow $20,000 salary allowances.The partners will share income and losses in a 1:2 ratio for John and Brad,respectively.How much will each partner's capital account change if net income is $100,000?

Question 77

The partnership of Smith and Jones,who have average capital balances of $17,000 and $23,000,respectively,earned $90,000 net income.Under each of the following independent situations,calculate the distribution of the $90,000.
a)No agreement was established.
b)Share based on their average capital balances.

Question 78

Before calculating salary and interest allowances,it is necessary to determine whether net income will cover these expenses.

Question 79

Closed the income summary,there is a net loss.
Debit ________ & ________ Credit ________

Question 80

A loss occurs when net income is not large enough to cover salary and interest allowances for the partners.